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Press release from CNW Group

MEGA Brands reports second quarter 2011 results

Thursday, July 28, 2011

MEGA Brands reports second quarter 2011 results07:00 EDT Thursday, July 28, 2011Seventh consecutive quarter of year-over-year sales growthToy sales up 11%, growth in all categoriesStationery and Activities sales up 2%MONTREAL, July 28, 2011 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced its financial results today for the second quarter ended June 30, 2011. The Corporation adopted International Financial Reporting Standards effective January 1, 2011 and all comparative 2010 figures have been restated. (All figures are expressed in US dollars.)Consolidated net sales in the second quarter increased 6% to $83.9 million compared to $78.8 million in the corresponding 2010 period. This is the seventh consecutive quarter of higher year-over-year consolidated sales since the fourth quarter of 2009.Toy sales increased 11% with growth in all categories compared to the second quarter of 2010. Sales of Stationery and Activities products increased 2%, reflecting the successful execution of the Corporation's new business plan for this segment.On a geographical basis, North American sales were up 6%, reflecting growth in both of the Corporation's product segments. International sales increased 8% in the second quarter and the Corporation expects further growth in the second half of the year.Net earnings were $0.3 million compared to a net loss of $0.4 million in the second quarter of 2010.''These results - and the fact that retail sales of our products are running ahead of shipments - show that we are building momentum throughout our business,'' said Marc Bertrand, President and CEO. ''We continue to invest in innovation and licensed properties, including an expanded offering of video game-based products from industry leaders such as Microsoft, Electronic Arts and Blizzard Entertainment. In Stationery and Activities, we are seeing early signs of a turnaround and we continue to implement our new business plan based on innovation and growth.''The Corporation's business is seasonal, with net sales and financial results typically at their highest levels in the third and fourth quarters.Conference CallA conference call will be held at 9:00 a.m. today to discuss the results and business outlook. Participants may listen to the call by dialing (514) 807-8791 or 1 (800) 731-5319. For those unable to participate, a replay will be available until August 3, 2011. The replay phone number is (416) 640-1917 or 1 (877) 289-8525, access code 4454214.About MEGA BrandsMEGA Brands Inc. is a trusted family of leading global brands in construction toys, games & puzzles, arts & crafts and stationery. They offer engaging creative experiences for children and families through innovative, well-designed, affordable and high-quality products. Visit for more information.The MEGA logo, Mega Bloks, Rose Art, MEGA Puzzles, MEGA Games and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.MD&A FilingThis press release should be read in conjunction with the Corporation's Management's Discussion and Analysis (the ''MD&A'') as well as the unaudited consolidated financial statements and notes for the three- and six month periods ended June 30, 2011 and 2010. The Corporation will file these documents today via SEDAR. The MD&A, financial statements and notes will be posted today on the Corporation's Web site.Use of Supplementary Financial MeasuresThe Corporation reports its financial results in accordance with International Financial Reporting Standards (''IFRS''). However, the Corporation believes that certain non-IFRS measures provide useful information to investors regarding its financial condition and results of operations. A reconciliation of supplementary financial measures with IFRS financial statements is provided in the Corporation's MD&A for the three-month period ended June 30, 2011, which is available at and on the Corporation's Web site.Forward-Looking StatementsAll statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities laws These statements represent the Corporation's intentions, plans, expectations and beliefs. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking information and statements are based on a number of assumptions and involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by them, including, but not limited to risks, assumptions and uncertainties described in the Corporation's MD&A for the year ended December 31, 2010, which are available at and on the Corporation's Web site. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, other than as required by applicable law.Unaudited Interim Consolidated Income Statements(in thousands of US dollars, except per share amounts)   Three-month periodsended June 30, Six-month periodsended June 30,  2011 2010 2011 2010 Note$ $ $ $         Net sales 83,942 78,775 134,978 127,920Cost of sales 52,892 48,488 86,116 81,043Gross profit 31,050 30,287 48,862 46,877         Marketing and advertising expenses 2,634 3,044 5,498 5,678Research and development expenses 3,517 2,955 6,793 6,008Other selling, distribution and administrative expenses 20,753 20,902 38,663 52,287Contingent consideration on business acquisition4606 167 774 335Gain on foreign currency translation (663) (1,319) (542) (1,117)         Earnings (loss) from operations 4,203 4,538 (2,324) (16,314)         Financial expenses 4,837 4,663 9,510 16,045Loss (gain) on settlement of debt72,984 - 2,984 (144,338)  7,821 4,663 12,494 (128,293)         Earnings (loss) before income taxes  (3,618) (125) (14,818) 111,979         Income taxes          Current (4,004) 797 (5,455) 7,637 Deferred 76 (494) (409) 1,749  (3,928) 303 (5,864) 9,386         Net earnings (loss) 310 (428) (8,954) 102,593         Earnings (loss) per share          Basic60.02 (0.03) (0.55) 11.03 Diluted6(0.18) (0.24) (0.55) 6.48Unaudited Interim Consolidated Statements of Comprehensive Income(in thousands of US dollars, except per share amounts)   Three-month periodsended June 30, Six-month periodsended June 30,  2011 2010 2011 2010 Note$ $ $ $         Net earnings (loss) 310 (428) (8,954) 102,593         Other comprehensive loss:         Cumulative translation adjustment4(315) (86) (881) (2,675)         Other comprehensive loss (315) (86) (881) (2,675)         Comprehensive income  (loss) (5) (514) (9,835) 99,918Unaudited Consolidated Statements of Financial Position(in thousands of US dollars)   June 30, December 31,  2011 2010 Note$ $     Assets    Current assets    Cash and cash equivalents 3,394 5,277Trade and other receivables 90,027 123,194Inventories 81,649 51,135Derivative financial instruments11617 414Prepaid expenses  11,648 11,039Total current assets 187,335 191,059     Non-current assets    Property, plant and equipment 31,520 21,501Intangible assets 23,404 23,615Goodwill 30,000 30,000Derivative financial instruments1196 309Deferred income tax assets 7,138 7,097Total assets 279,493 273,581          Liabilities         Current liabilities    Asset-based credit facility720,294 -Trade and other payables 70,793 62,686Income taxes 12,532 16,857Derivative financial instruments111,620 970Current portion of long-term debt77,382 35  112,621 80,548Non-current liabilities    Long-term debt7108,162 125,507Derivative financial instruments11173 19Deferred income tax liabilities - -  108,335 125,526Equity    Share capital8429,007 429,007Warrants824,430 24,430Contributed surplus 2,847 1,982Deficit4(391,606) (382,652)Accumulated other comprehensive loss4(6,141) (5,260)Total equity 58,537 67,507Total liabilities and equity 279,493 273,581Unaudited Consolidated Statement of Changes inEquity(in thousands of US dollars)    Share capital WarrantsContributedsurplusDeficitAccumulatedothercomprehensivelossTotal equity Note $$$$$$Balance - January 1, 2010  308,678-558(513,754)-(204,518)Net earnings for the period  ---102,593-102,593Other comprehensive loss4 ----(2,675)(2,675)Shares issued in settlement of debt8 37,869----37,869Shares issued for cash8 85,859----85,859Share issuance expense8 (3,399)----(3,399)Issuance of warrants8 -25,395---25,395Warrant issuance expense8 -(965)---(965)Stock-based compensation  --475--475Balance - June 30, 2010  429,00724,4301,033(411,161)(2,675)40,634    ---- Net earnings for the period  ---28,509-28,509Other comprehensive loss4 ----(2,585)(2,585)Stock-based compensation  --949--949Balance - December 31, 2010  429,00724,4301,982(382,652)(5,260)67,507         Net loss for the period  ---(8,954)-(8,954)Other comprehensive loss  ----(881)(881)Stock-based compensation  --865--865Balance - June 30, 2011  429,00724,4302,847(391,606)(6,141)58,537Unaudited Consolidated Statements of Cash Flows        (in thousands of US dollars)                   Six-month periods,ended June 30  2011 2010 Note$ $     Operating activities    Net earnings (loss) (8,954) 102,593Items not affecting cash and cash equivalents     Depreciation of property, plant and equipment 5,134 5,323 Amortization of intangible assets 211 332 Loss (gain) on settlement of debt71,236 (149,304) Stock-based compensation 866 475 Financial expenses 9,510 16,045 Writeoff deferred financing costs71,748 2,967 Income taxes (5,864) 9,386 Loss (gain) on foreign currency 587 (2,741)  4,474 (14,924) Net change in non-cash working capital balances1010,594 15,692 Income taxes recovered (paid) 1,306 (1,167) Interest paid (7,151) (20,267)Cash flows provided by operating activities 9,223 (20,666)     Financing activities    Repurchase of debentures7(20,644) -Change in asset-based credit facility720,294 -Government loan74,152 -Issuance of long-term debt732 -Repayment of long-term debt7  (216,100)Issuance of debentures7- 120,732Issuance of capital stock8- 85,859Issurance of warrants8- 23,776Addition to deferred financing costs7- (7,937)Share issue cost8- (3,399)Issue costs on warrants8- (965)Cash flows provided by financing activities 3,834 1,966     Investing activities    Acquisition of property, plant and equipment (14,932) (4,132)Cash flows provided by investing activities (14,932) (4,132)     Effect of changes in foreign exchange rates on cash and cash equivalents (8) (13)     Increase (decrease) in cash and cash equivalents (1,883) (22,845)Cash and cash equivalents — Beginning of period 5,277 26,763     Cash and cash equivalents — End of period 3,394 3,918   For further information: Investor Contact: Peter Ferrante Vice President and Chief Financial Officer MEGA Brands Inc. Tel: (514) 333-5555 ext. 2283